Should Investors Follow Cathie Wood Into Coinbase?

The recent direct listing of Coinbase (COIN) in mid-April resulted in a rather incredible opening day. Shares were listed at a $250 reference price. However, in early morning trading, COIN stock was trading hands at nearly $430 per share, before setting down toward $310 per share later in the day.

Since the company’s IPO, Coinbase investors have seen a relatively slow and steady decline. A bump in early May brought this company’s share price above $300 per share again. However, investors can currently gobble up COIN stock for around $220 per share at the time of writing. (See Coinbase stock analysis on TipRanks)

Indeed, for such a high-profile stock, maybe there’s some real value in picking up this growth company below its IPO price?

Growth stock guru Cathie Wood certainly believes so. Ms. Wood has been buying Coinbase heavily on dips, recently buying 1.2 million shares in late May at a price around where COIN stock is trading today.

For those looking to be the next Cathie Wood, riding these coattails and picking up shares at roughly the same cost as this growth investing icon certainly seems like an attractive idea. Indeed, with the crypto craze losing some steam right now, one might argue that now is the perfect time to be greedy when others are fearful, as Warren Buffett famously said.

Some believe Ms. Wood is one of the great minds in investment, but following Ms. Wood into Coinbase might not be such a good idea right now.

Cryptocurrency Rise Could Take a While to Resume

Investors in Coinbase benefit from an environment where cryptocurrencies are skyrocketing in price. Exchanges like Coinbase earn transaction fees from trading, as well as from other tertiary activities such as analytics and storage. These fees make up the lion’s share of Coinbase’s revenues (approximately 90% last year).

Once the initial hype dies down, crypto enthusiasts are slower to open their wallets (digital wallets, of course) to buy these digital tokens. Accordingly, until we see a ramp up in cryptocurrency markets once again, it’s hard to see the growth story continue for exchanges like Coinbase.

There happen to be a number of market pundits who believe Bitcoin has a lot further to fall before this correction is done. Indeed, in light of some of the previous crashes with Bitcoin, this could again be the case.

What If We are Wrong?

Now, this could all be temporary. After all, long-term watchers of this crypto mania will note that we’ve been at this dance for more than a decade. Those who thought Bitcoin was overvalued at $100, $1,000, and $10,000 have been wrong. This tree looks like it can indeed grow to the sky, and previous massive declines have simply been par for the course.

Indeed, if cryptocurrencies like Bitcoin can reverse course and head toward Cathie Wood’s $500,000 target price, bears will have been proven wrong.

For those with a long enough investing time horizon, perhaps getting in on COIN stock at around $220 a share will ultimately turn out to be a great investment. No one will know until history is written.

What Analysts Are Saying About COIN Stock

According to TipRanks’ analyst rating consensus, COIN stock comes in as a Moderate Buy. Out of 14 analyst ratings, there are 10 Buy recommendations, and 4 Hold recommendations.

As for price targets, the average analyst Coinbase price target is $388.86. Analyst price targets range from a low of $225.00 per share to a high of $650.00 per share.

Bottom Line

Coinbase is certainly one of the most polarizing stocks in the market today. Indeed, this company’s future rests on the success of the overall crypto market, and on whether traders can remain amped up about these digital tokens.

Thus, investors are making a highly leveraged speculative bet that mania will once again return to the market. As we’ve seen in recent days, meme stock mania has once again found its footing. So, anything’s possible.

For those who aren’t on the aggressive, risk-seeking end of the risk continuum, this is probably a stock on which to sit on the sidelines. For those looking to be greedy when others are fearful, go for it.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.